Swire Properties Underlying Net Almost Triples on Mall Sale

March 15 (Bloomberg) -- Swire Properties Ltd., the Hong
Kong commercial landlord spun off from its parent in January,
said 2011 underlying profit almost tripled on a one-time gain
from the sale of a shopping mall in the city.

Swire Properties’ profit excluding real estate revaluations
jumped 170 percent to HK$12.9 billion ($1.7 billion), from
HK$4.8 billion a year earlier, the company said in a statement
to Hong Kong’s stock exchange today. Earnings included a HK$8.6
billion profit from the sale of the Festival Walk shopping mall
in Hong Kong’s Kowloon Tong area.

Earnings at the company, whose tenants include Societe
Generale SA, may slow this year as firms cut jobs amid a global
economic slowdown, weighing on rents. Hong Kong’s prime office
rents may fall in 2012 after climbing 60 percent between July
2009 and the end of 2011, according to Jones Lang LaSalle Inc.,
the world’s second-biggest publicly traded commercial property
broker.

“Banks are showing little signs of re-expanding so office
rents will remain stagnant for a while,” said Francis Lun,
managing director at Hong Kong-based Lyncean Holdings Ltd.
“This could be a drag for Swire even though their retail
portfolio will still be growing.”

Excluding the HK$8.6 billion profit from the sale of
Festival Walk in Hong Kong’s north and other impairment losses,
profit rose to HK$4.4 billion from HK$3.8 billion a year earlier,
the company said. That compares with the HK$4.8 billion median
estimate of five analysts surveyed by Bloomberg News.

Rental Income

The shares have gained 9.3 percent since Swire Properties
started trading on Jan. 18 after parent Swire Pacific Ltd. spun
off the company. That compares with an 8 percent increase in the
benchmark Hang Seng Index. The stock fell 3.1 percent to
HK$18.76 at the close of trading in Hong Kong.

“Demand for our office space in Hong Kong is likely to be
affected by uncertain market conditions,” Swire Properties’
Chairman Christopher Pratt said in the statement.

Swire Properties owns about 10.5 million square feet of
prime office space and 2.4 million square feet of retail space
in the city, including the Pacific Place and Island East
commercial complexes. Hong Kong is the world’s costliest place
to rent an office, according to Knight Frank LLP.

Gross rental income from the company’s office properties
rose to HK$4.5 billion from HK$4.2 billion a year earlier, it
said. Income from shopping malls rose to HK$3.7 billion from
HK$3.4 billion.

The company expects a 10 percent increase in Pacific Place
rents in the first two months of 2012, while growth is not as
strong as in same period in 2011, said Chief Executive Officer
Martin Cubbon at a press conference in Hong Kong today. The
company plans HK$17 billion of capital spending over the next
five years.

‘Stay Strong’

The city’s retail rents are expected to “stay strong” in
2012 as Hong Kong remains a key market for international brands,
Jones Lang LaSalle said in December. Hong Kong’s prime rents for
shopping malls climbed 12 percent in 2011 on influx of Chinese
shoppers.

The company, the biggest office landlord in Hong Kong’s
Island East and Admiralty districts, is planning to expand the
two complexes by 15 percent to 21 percent in the next seven
years, according to Cusson Leung, an analyst at Credit Suisse
Group AG in Hong Kong.

“The Hong Kong office market is bottoming out and we’re
looking for a gradual recovery in the second half,” Leung, who
forecast office rents will drop as much as 15 percent this year,
said before the earnings were announced. The expansion “makes
it stand out from the other key landlords that rely on organic
growth of existing portfolio.”

China Properties

The developer’s properties in other parts of China include
the Sanlitun Village retail complex in Beijing, the 99-room
luxury hotel Opposite House in the capital’s Chaoyang district
and Taikoo Hui in the southern city of Guangzhou, which opened
in September. It also has projects in Chengdu and Shanghai.

Swire Properties in February announced it is building a 2.9
million square-foot mix-used development in Miami.

In a separate statement, Swire Pacific, which also controls
Cathay Pacific Airways Ltd., the city’s biggest carrier, said
net income for the group fell to HK$32.2 billion from HK$38.3
billion a year earlier. Sales rose to HK$36.3 billion from
HK$29.2 billion.

Created as a trading company in London in 1816, Swire
Pacific also bottles Coca-Cola in China and supplies offshore
oil rigs.